Reference no: EM131447784
Assignment
Question 1
Equipment is purchased at a cost of $80,000. As a result, annual cash revenues are expected to increase by $45,000; annual cash expenses are expected to increase by $12,000; straight-line depreciation is used; the asset has a seven-year life; the salvage value is $10,000. Assume the company is in a 34% tax bracket.
1. Determine the accounting rate of return? (round to the nearest %)
2. Determine the payback period?
3. Determine the NPV assuming a minimum required rate of return of 8%?
Question 2 (Ignore taxes for this problem)
Terra Networks is planning to buy injection molding machinery costing $180,000. This machinery's expected useful life is 5 years. They require a minimum rate of return of 8%, and have calculated the following data pertaining to the purchase and operation of this machinery:
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Year
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Estimated Annual Cash Inflows
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Estimated Annual Cash Outflows
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Depreciation
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|
1
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$ 40,000
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$8,000
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$28,000
|
|
2
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$50,000
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$18,000
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$28,000
|
|
3
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$75,000
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$22,000
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$28,000
|
|
4
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$105,000
|
$35,000
|
$28,000
|
|
5
|
$110,000
|
$50,000
|
$28,000
|
1. Determine Terra's payback period, accounting rate of return, and NPV for this investment?
Question 3
Company X is planning on purchasing a 3-D printer. The expected cost of this printer is $75,000, and it is expected to have a useful life of 6 years and an estimated salvage value of $3,000. The printer is expected to produce cash savings of $23,000 per year in reduced labor costs and the cash operating costs to run this printer are estimated to be $5,000 per year. Assuming Company X is in the 34% tax bracket and has a minimum desired rate of return of 12% on this investment.
Determine the:
1. (a) payback period, (b) ARR, and (c) NPV (Ignoring taxes), and
2. (a) payback period, (b) ARR, and (c) NPV (Assuming taxes).
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